Israeli commandos have opened fire on an unmarked car in the West Bank town of Bethlehem, shooting dead four Palestinian militants.
Those killed include Muhammad Shahada, 48, a senior leader of Islamic Jihad, and Ahmed al-Balbul, also 48, a leader of the Al-Aqsa Martyrs Brigades.
Two others killed were identified as members of the Islamic Jihad group.
Hours later, Palestinian militants in the Gaza Strip fired at least four rockets at the Israeli town of Sderot.
No injuries were reported in the town after the attack which, according to Reuters news agency, was claimed by Islamic Jihad as an "initial" response to the Bethlehem killings.
The violence comes after a surge in violence in the Gaza Strip that left 125 dead in one week.
According to witnesses a team of Israeli commandos disguised as locals and driving a car with Palestinian number plates sprayed the militants' car with bullets.
Israeli officials confirmed the raid, saying that they had intended to make arrests but opened fire when they saw that three of the militants were armed with assault rifles.
They blamed the Islamic Jihad militants for attacks on Israelis.
Palestinian officials from Islamic Jihad and Hamas denounced the operation.
"Islamic Jihad and the other resistance groups have the right to respond in any place to this crime of assassination and all options are open," said Dawud Shihab, an Islamic Jihad leader in Gaza.
"What the enemy has done undermines any talk of a ceasefire," he said.
Earlier on Wednesday, Israeli troops shot dead an Islamic Jihad militant near the northern West Bank town of Tulkarm.
There had been a lull in the Gaza violence over the last few days, with the Israeli military reducing operations in Gaza on Monday following a sharp drop in rocket fire from Palestinian militants.
Egypt has been working to broker an agreement.
On Wednesday, the Palestinian militant group Hamas set out its conditions for a truce, calling for an end to Israeli military operations in Gaza and the re-opening of its borders, in return for halting rocket attacks.